A coordinated US-Japan currency intervention sent the yen surging on August 3, with President Donald Trump and Treasury Secretary Scott Bessent both confirming the joint action publicly. Former Executive Yuan Deputy Premier Shih Jun-ji (施俊吉) credited the move with defusing a latent "carry trade bomb" that had threatened equity markets across the region — while warning that if the Bank of Japan continues to avoid interest rate hikes, "how long the good times can last is worth doubting."
Orderly Unwind Preserved Stock Markets in Taiwan, Japan, and Korea
In a Facebook post published August 3, Shih argued that the intervention's true strategic purpose was to engineer a controlled unwinding of yen carry trades. The practice involves borrowing cheaply in yen, converting the funds into higher-yielding overseas assets, and pocketing the interest rate spread — a trade that becomes acutely painful to hold when the yen suddenly appreciates.
Shih estimated the intervention's target zone centered on 155 yen per US dollar, roughly a 5% appreciation from the previous week's historic low of 163.4. That level was reached early on the morning of August 3, which he interpreted as confirmation that the coordinated action had triggered the intended carry trade unwind exactly as planned. Once the yen began climbing toward that target, traders were compelled to liquidate foreign-currency holdings and buy back yen to repay their yen-denominated loans — releasing pressure that had been quietly accumulating beneath global equity markets.
"This 'orderly' unwinding made the yen appreciate rapidly, while maintaining the vitality of Japan, South Korea, and Taiwan's stock markets," Shih wrote, describing the operation as having successfully averted a repeat of August 5, 2024, when an abrupt carry trade collapse triggered a severe, synchronized selloff across regional and global markets.
BoJ Governor Ueda's Rate Freeze Emboldens Yen Bears
The intervention came at considerable cost. Japan reportedly deployed approximately $52.8 billion — around 8.45 trillion yen — through the Federal Reserve Bank of New York, selling US dollars and buying yen following the Federal Reserve's July 30 decision to hold US rates steady. The timing was deliberate: no one under the sun, Shih wrote, would dare take on a US-Japan coalition, making yen appreciation a near-certainty once the joint commitment became public.
Yet on July 31, Bank of Japan Governor Kazuo Ueda announced the central bank would leave its benchmark rate unchanged at 1%. Ueda did pledge the BoJ would not "fall behind the curve," but the overall posture read to markets as passive. Shih described the yen's behavior that day as volatile and directionless — rising sharply, then reversing, then recovering again — as traders struggled to price in an uncertain policy path.
Citing Financial Times reporting from that weekend, Shih noted that bearish traders had been actively positioning to short the yen, with some targeting a return to 162 yen per dollar — essentially wagering that Japan would ultimately allow the currency to retrace most of its intervention gains.
Japan's Rate Gap Remains the Core Threat to Yen Stability
With Trump and Bessent's August 3 public confirmation providing fresh support, markets retreated from those bearish bets — at least temporarily. But Shih identified the Bank of Japan's deep reluctance to raise rates as the structural vulnerability no amount of coordinated action can fully offset. As long as Japan keeps borrowing costs near zero while the United States holds rates comparatively high, the interest rate differential continues to function as a dependable carry trade incentive — giving speculators a durable reason to short the yen irrespective of short-term intervention.
"If Japan still avoids raising interest rates, how long the good times can last is worth doubting," Shih concluded. For the yen's recovery to prove durable, the Bank of Japan must move beyond forward guidance and demonstrate through action a genuine commitment to narrowing the rate gap — or accept that the carry trade will simply rebuild itself, bomb intact.
